Asked by Wendy Thurmond on May 27, 2024
Verified
Continuing franchise fees should be recorded by the franchisor
A) as revenue when received.
B) as revenue in the period they are earned and received.
C) in accordance with the franchise agreement.
D) as revenue only after the balance of the initial franchise fee has been received.
Continuing Franchise Fees
Regular payments made by franchisees to the franchisor for ongoing support and the right to continue operating under the franchisor's brand and system.
Franchise Agreement
A legal, binding contract between a franchisor and franchisee, outlining the terms and conditions for running a franchised business.
- Acquire knowledge about the conditions for revenue recognition stipulated by U.S. GAAP and IFRS.
Verified Answer
ZK
Zybrea KnightJun 03, 2024
Final Answer :
B
Explanation :
Continuing franchise fees represent ongoing revenue streams for the franchisor and, therefore, should be recognized in the period they are earned and received, in accordance with generally accepted accounting principles (GAAP). This method ensures that revenue recognition is accurately reflected in the financial statements, and enables investors and other interested parties to make informed decisions based on consistent accounting practices. Option A, recognizing continuing franchise fees as revenue when received, does not consider when the fees are earned and would not be in accordance with GAAP. Option C, recognizing continuing franchise fees in accordance with the franchise agreement, may not be consistent with GAAP if the agreement does not align with accounting principles. Option D, recognizing continuing franchise fees only after the balance of the initial franchise fee has been received, also does not consider when the fees are earned and would not be in accordance with GAAP.
Learning Objectives
- Acquire knowledge about the conditions for revenue recognition stipulated by U.S. GAAP and IFRS.
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